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SBA Offers Certification Safe Harbor and Relief for Small Business Recipients of Paycheck Protection Loans– May 13, 2020by Adam Hill

On May 13, 2020, the SBA and Treasury announced a piece of much-awaited guidance related to the Paycheck Protection Program (PPP). FAQ #46 offers relief regarding the certification all PPP loan borrowers must make: “that the current economic uncertainty makes this loan request necessary to support the operations of the applicant.” The Interim Final Rule issued April 24, 2020, states that borrowers must make this certification in good faith, taking into account their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business. The new guidance issued in FAQ #46 creates a safe harbor that should give millions of small businesses comfort in the certification they signed off on.

Impact on Smaller Loans

FAQ #46 states that any borrower, along with its affiliates, with a PPP loan amount of under $2 million will automatically be considered as having requested the loan in good faith, according to the required certification. The SBA’s reasoning is that “borrowers with loans below this threshold are generally less likely to have had access to adequate sources of liquidity in the current economic environment than borrowers that obtained larger loans.”

This guidance should provide additional economic certainty for PPP recipients under the threshold, as they can rest assured the SBA will not review or challenge them on their right to the loan — regardless if they had access to funds elsewhere.

Impact on Larger Loans

As previously announced, the SBA will focus their compliance reviews on larger loans, those above the $2 million threshold. While borrowers in this higher category may still have very good facts for making the good-faith certification, if the SBA determines in the course of its review that a borrower lacked an adequate basis for the required certification concerning the necessity of the loan request, the SBA will seek repayment of the outstanding balance and will inform the lender that the borrower is not eligible for loan forgiveness. As long as the borrower repays the loan after receiving this notification, the SBA will not pursue administrative enforcement or referral to other agencies.

Loan Forgiveness & Advocacy

We are still waiting on additional guidance from the SBA and Treasury as it relates to PPP loan forgiveness. The AICPA, along with several other small business advocates and businesses themselves — including Cohen & Company — have been strongly advocating for new guidance from the SBA as soon as possible.

If you are a PPP loan borrower, continue to follow the rules currently in place. If you get to week seven of your covered loan period and there is still no guidance, contact your CPA team to discuss further.

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Cohen & Company is not rendering legal, accounting or other professional advice. Information contained in this post is considered accurate as of the date of publishing. Any action taken based on information in this blog should be taken only after a detailed review of the specific facts, circumstances and current law.